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Mahindra & Toyota Drive SUV Boom Amid Industry Challenges
Business, Equities, Market News, Markets - December 23, 2024

Mahindra & Toyota Drive SUV Boom Amid Industry Challenges

Mahindra & Toyota Drive SUV Boom Amid Industry Challenges

Mahindra & Toyota Drive SUV Boom Amid Industry Challenges
In 2024, India’s automotive industry has witnessed significant shifts, with Mahindra & Mahindra and Toyota Kirloskar Motor achieving record sales despite prevailing challenges. This trend underscores the evolving dynamics of the Indian car market, characterized by a growing consumer preference for SUVs and strategic adaptations by manufacturers.

Mahindra & Mahindra’s Performance
Mahindra & Mahindra has experienced a remarkable surge in sales, particularly in the SUV segment. In October 2024, the company reported its highest-ever SUV sales, delivering 54,504 vehicles—a 25% year-over-year increase compared to the same month in 2023.
NDTV
This achievement marks the second consecutive month of record-breaking sales for Mahindra, reflecting its successful alignment with consumer preferences favoring larger vehicles.

The company’s robust performance is further evidenced by its financial results. In the second quarter, Mahindra reported a 13.2% rise in profit to ₹38.41 billion, surpassing analysts’ expectations. This growth is attributed to higher SUV sales and a recovery in tractor demand, with SUV volumes rising by 19% despite industry-wide challenges.
Reuters

Toyota Kirloskar Motor’s Performance
Toyota Kirloskar Motor has also demonstrated impressive growth. In October 2024, the company reported a 41% year-over-year increase in sales, delivering 30,845 units. Domestic sales accounted for 28,138 units, while exports contributed 2,707 units.
The New Indian Express
This performance highlights Toyota’s strong market presence and its ability to meet the rising demand for SUVs in India.

Market Dynamics and Consumer Preferences
The Indian automotive market has been increasingly dominated by SUVs, with consumers showing a clear preference for these vehicles over smaller cars. This shift is evident in the sales figures of major manufacturers. For instance, Maruti Suzuki, traditionally known for its small cars, reported a 19.4% increase in SUV sales in October 2024, achieving record-high figures in this segment.

This trend towards SUVs is driven by several factors, including the perception of better safety, higher ground clearance suitable for diverse Indian terrains, and a growing aspirational value associated with owning larger vehicles. Manufacturers like Mahindra and Toyota have capitalized on this shift by expanding their SUV portfolios and introducing models that cater to the evolving preferences of Indian consumers.

Industry Challenges
Despite these successes, the industry faces challenges, including fluctuating demand and inventory management issues. In September 2024, dealer inventories reached critically high levels of up to 85 days, prompting concerns about overstocking. However, the festive season in October helped reduce these inventories to more manageable levels, as manufacturers and dealers offered promotions to boost sales.

Additionally, the industry has been navigating the transition towards electric vehicles (EVs) and adhering to stricter emission norms. While the demand for EVs is gradually increasing, the current market is still predominantly driven by internal combustion engine vehicles, particularly SUVs. Manufacturers are balancing the need to invest in future technologies with the immediate demand for conventional vehicles.

Strategic Implications for Investors
For investors, the strong performance of Mahindra & Mahindra and Toyota Kirloskar Motor indicates a positive outlook for companies with a robust SUV lineup and the ability to adapt to market trends. Mahindra’s consistent growth in SUV sales and its strategic positioning in the agricultural sector through its tractor business provide a diversified revenue stream, enhancing its investment appeal.

Toyota’s emphasis on quality and its expanding portfolio in the Indian market also make it a noteworthy player. Its ability to achieve significant sales growth amidst industry challenges reflects operational efficiency and market adaptability.

However, investors should remain cognizant of the broader industry challenges, including inventory management and the ongoing transition to EVs. Companies that effectively navigate these challenges while aligning with consumer preferences are likely to sustain growth and offer favorable returns.

Conclusion
The record sales achieved by Mahindra & Mahindra and Toyota Kirloskar Motor in 2024 underscore the dynamic nature of the Indian automotive market. The growing consumer preference for SUVs has been a significant driver of this growth, with manufacturers that align their strategies accordingly reaping substantial benefits. While challenges persist, the ability to adapt to market trends and manage operational complexities will be crucial for sustained success in this evolving industry landscape.

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Business, Equities, Market News, Markets - December 20, 2024

Indian Auto Components Industry Grows 11.3% in H1 FY25

Indian Auto Components Industry Grows 11.3% in H1 FY25

The Indian auto components industry has demonstrated robust growth in the first half of the fiscal year 2024-25 (H1 FY25), achieving an 11.3% increase in market size compared to the same period in the previous year. According to a report by the Automotive Component Manufacturers Association (ACMA), the industry’s valuation rose from USD 36.1 billion in H1 FY24 to USD 39.6 billion in H1 FY25.

Market Dynamics and Consumer Preferences
Several key trends have contributed to this growth, reflecting evolving consumer preferences across various vehicle segments:

Passenger Vehicles (PVs): There has been a notable shift towards larger vehicles, particularly Utility Vehicles (UVs). The UV segment experienced a 13% increase in demand, with UV1 models—vehicles measuring between 4,000 to 4,400 mm in length and priced under ₹20 lakh—seeing a substantial 25% surge in sales.

Two-Wheelers: The market for motorcycles with higher engine capacities has expanded significantly. Sales of motorcycles with engine capacities ranging from 350cc to 500cc soared by 74%, indicating a consumer preference for more powerful two-wheelers.

Electric Vehicles (EVs): The EV segment exhibited mixed results. Overall EV sales increased by 22% in H1 FY25 compared to the same period last year. Electric two-wheelers (e-2Ws) led this growth with a 26% rise in sales. However, electric passenger vehicles (e-PVs) experienced a 19% decline in sales, suggesting potential challenges in consumer adoption or market offerings in this sub-segment.

Factors Driving Growth
The industry’s growth can be attributed to several factors:

Economic Recovery: Post-pandemic economic recovery has bolstered consumer confidence, leading to increased spending on automobiles and, consequently, auto components.

Government Initiatives: Policies promoting manufacturing and the adoption of electric vehicles have provided a conducive environment for industry expansion.

Technological Advancements: The integration of advanced technologies in vehicles has increased the demand for sophisticated auto components, contributing to market growth.

Challenges and Considerations
Despite the positive trajectory, the industry faces certain challenges:

Supply Chain Disruptions: Global supply chain issues, including semiconductor shortages, have impacted production schedules and could pose risks to sustained growth.

EV Adoption Barriers: The decline in e-PV sales highlights potential obstacles in the electric vehicle market, such as inadequate charging infrastructure, higher upfront costs, or limited consumer awareness.

Outlook
The Indian auto components industry is poised for continued growth, supported by favorable economic conditions and evolving consumer preferences. However, addressing supply chain challenges and enhancing the ecosystem for electric vehicles will be crucial for sustaining this momentum.

In conclusion, the 11.3% growth in H1 FY25 underscores the resilience and adaptability of the Indian auto components industry amid changing market dynamics and consumer behaviors.

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Business, Equities, Market News, Markets - December 19, 2024

Auto Industry Nears ₹25,000 Cr Import Reduction Target

Auto Industry Nears ₹25,000 Cr Import Reduction Target

The Indian automotive industry is on course to achieve its ambitious goal of reducing imports by ₹25,000 crore (approximately $3 billion) by the end of the current fiscal year. This initiative focuses on increasing the localization of advanced components such as electric motors, airbags, and automatic transmissions. Industry assessments indicate that significant progress has been made, with further advancements anticipated in the coming years.

Localization Efforts and Achievements
In an effort to reduce dependency on imports, the Society of Indian Automobile Manufacturers (SIAM) and the Automotive Component Manufacturers Association (ACMA) have spearheaded localization programs targeting 11 critical categories, including drive transmissions, engines, steering systems, electronics, and electrical parts. These components account for about 70% of total imports in the sector.

Between FY20 and FY22, the industry achieved net localization gains of ₹7,018 crore. Building on this momentum, there is an ongoing effort to realize an additional ₹17,977 crore in net localization by FY25. This cumulative effort is expected to meet the ₹25,000 crore import reduction target set for the current fiscal year.

Shradha Suri Marwah, President of ACMA, highlighted the industry’s progress, stating, “Value-addition from the Indian auto components industry has gone up significantly in the last couple of years. In the first phase (till FY22), we achieved double the target of attaining localization level at about 6%. The second phase is underway. The industry is targeting deepening localization by another 15%.”
ECONOMIC TIMES

Investments and Technological Advancements
To support these localization efforts, component manufacturers are investing in new facilities and technologies. This includes the development of advanced manufacturing processes and the adoption of cutting-edge technologies to produce complex components domestically. Such investments not only reduce import dependence but also enhance the competitiveness of Indian manufacturers in the global market.

Government Initiatives and Policy Support
The Indian government has introduced several initiatives to bolster the automotive sector’s localization efforts. The Performance-Linked Incentive (PLI) scheme, for instance, aims to promote the production of electric vehicles and hydrogen fuel vehicles, with an allocation of ₹26,000 crore (US$3.61 billion). This scheme is expected to generate approximately 750,000 direct jobs in the auto sector and reduce the country’s carbon footprint.
WIKIPEDIA

Additionally, the government’s focus on developing infrastructure for electric vehicles and promoting sustainable mobility solutions further supports the industry’s localization objectives.

Impact on the Indian Economy
The localization drive is anticipated to have a positive impact on the Indian economy by reducing the trade deficit and fostering the growth of the domestic manufacturing sector. By producing critical components locally, the industry can retain more value within the country, create employment opportunities, and stimulate economic development.

Moreover, the increased focus on localization aligns with India’s vision of becoming a global automotive hub. Projections indicate that the Indian auto market is poised to reach USD 300 billion by 2026, driven by rising income levels, urbanization, and a burgeoning middle class.
ECONOMIC TIMES

Challenges and Future Outlook
While significant progress has been made, the industry faces challenges in achieving deeper localization. These include the need for substantial capital investment, development of technical expertise, and ensuring quality standards that meet global benchmarks.

To address these challenges, collaboration between industry stakeholders, government bodies, and educational institutions is essential. Such partnerships can facilitate skill development, research and development, and the creation of a robust supply chain ecosystem.

Looking ahead, the Indian automotive industry is expected to continue its localization efforts, with reassessments and the setting of new targets in consultation with the government. This ongoing commitment to reducing import dependence and enhancing domestic manufacturing capabilities positions India favorably in the global automotive landscape.

In conclusion, the Indian automotive industry’s concerted efforts towards localization are yielding tangible results, bringing the sector closer to its import reduction targets. With continued investments, policy support, and collaborative initiatives, the industry is well-positioned to achieve its goals and contribute significantly to the nation’s economic growth.

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Business, Equities, Market News, Markets - December 18, 2024

India's Push for Self-Reliance in Electronics Manufacturing: Government Support and Industry Growth

India’s Push for Self-Reliance in Electronics Manufacturing: Government Support and Industry Growth

In recent years, India has taken significant strides toward becoming a global hub for electronics manufacturing, driven by the government’s production-linked incentive (PLI) schemes. These initiatives, aimed at promoting domestic manufacturing of various products, have particularly targeted sectors such as mobile phones and information technology hardware. While these efforts have successfully scaled up India’s capability in final assembly, experts suggest that the next step in India’s electronics manufacturing journey is to deepen its presence in the supply chain.

The challenge ahead lies in increasing the domestic value addition, which is currently at a modest 18-20%. The government’s ambition is to boost this figure to 40% within the next five years. However, to achieve this, it is crucial to develop a domestic electronic component supply base from scratch, an area where India remains significantly underdeveloped. To address this issue, the Indian government is planning to roll out a financial support package aimed at nurturing the nascent electronic component ecosystem and ensuring that India becomes a key player in the global electronics supply chain.

The Need for a Robust Component Ecosystem
Currently, India is heavily reliant on imports to meet its electronic component needs. According to the Electronics Industries Association of India (ELCINA), the country imports about 70% of its electronic components, which poses a significant challenge to achieving self-reliance in electronics manufacturing. Rajoo Goel, the Secretary General of ELCINA, highlighted the need for a special scheme that offers both production and capital incentives to bridge this gap and help the country compete with nations like China and Vietnam, which have established and scalable electronics component manufacturing bases.

The government’s planned financial support package aims to change this by providing incentives that will attract both domestic companies and global component makers to set up production in India. This package will focus on creating infrastructure, offering subsidies, and providing incentives for manufacturing components such as printed circuit boards (PCBs), display assemblies, camera modules, connectors, and lithium-ion cells. These components account for a substantial portion of the Bill of Materials (BoM) in electronic goods, yet India currently only produces about 10% of the total value of these components. This creates a substantial demand-supply gap, which is predominantly filled through imports, primarily from China and Hong Kong.

India’s Increasing Appeal for Global Electronics Players
Despite the challenges, India’s progress in mobile phones, laptops, tablets, and other electronic components has attracted the attention of global players. Several domestic and international companies are increasingly looking to India for its favorable resources, including access to talent, land, water, electricity, and a stable governance structure. This shift in focus is underscored by the increasing number of companies entering India’s component manufacturing space.

For instance, domestic electronics manufacturer Dion Technologies recently signed a deal with Chinese display maker HKC to manufacture display modules for smartphones, tablets, and laptops. The company plans to invest Rs 250 crore in setting up a new facility. Similarly, TDK, a leading Japanese supplier of lithium-ion cells, is investing Rs 7,000 crore to set up a manufacturing base in Manesar. This facility is expected to cater to the growing demand for batteries in electronics manufacturing, particularly for smartphones.

Other companies, including Motherson Group, BIEL Crystal Manufactory, and Corning, are also making significant investments in India to tap into the country’s growing electronics manufacturing potential. These investments reflect a broader shift in India’s approach towards becoming self-reliant in electronics manufacturing, moving beyond assembly to component production, which is a key part of the value chain.

Government Initiatives and the Path Forward
The government’s PLI scheme has already set the foundation for scaling up mobile phone and IT hardware manufacturing in India. However, experts argue that more needs to be done to address the underlying issues in the component ecosystem. The proposed financial support package is expected to allocate approximately Rs 40,000 crore in subsidies and incentives to encourage the production of non-semiconductor components.

The package is crucial because India’s current electronics component production stands at a mere $10.75 billion, which is only around 10% of the total electronics production. This disparity highlights the significant room for growth. For instance, India imported $76 billion worth of components in FY24, despite producing finished electronic goods worth $115 billion. This growing dependency on imports poses a challenge to the sustainability of India’s electronics manufacturing ambitions, especially with the projected growth in demand.

According to the Directorate General of Foreign Trade (DGFT), 60-70% of electronics imports comprise components and sub-assemblies. As India’s electronics production is expected to double to $500 billion by 2030, the demand for components is projected to grow at an annual rate of 53%, creating a demand-supply gap of over $100 billion.

Overcoming Challenges in Component Manufacturing
One of the key hurdles that India’s component manufacturing sector faces is the lack of scale. The industry is currently dominated by mid to small-sized homegrown companies that often struggle to meet the high quality and precision standards required by global players. A report by the Confederation of Indian Industry (CII) suggests that to scale up the industry and compete globally, the government should provide support of 9% over the next ten years to offset disabilities and achieve economies of scale.

Component manufacturers in India also face a significant cost disadvantage. A NITI Aayog report identified that the high cost of inputs, including tariffs on materials, logistics costs, and financing costs, results in a 14-18% disability compared to countries like China. These cost disadvantages, coupled with the absence of original design manufacturers and limited access to global demand, have slowed the growth of the domestic component ecosystem.

The government’s planned financial support package aims to address these challenges by providing operational and capital expenditure (capex) support. Components like lithium-ion cells, PCBs, and camera modules will receive targeted incentives based on their existing presence in the market and their potential for growth. For example, lithium-ion cells will receive capex support, while display and camera modules, which already have a foothold in India, will primarily receive operational support.

Strategic Collaborations and Vendor Development
One of the driving forces behind India’s push to strengthen its electronics manufacturing capabilities is the growing collaboration between global companies and domestic manufacturers. Companies like Apple have been actively working with Indian suppliers to integrate them into their global supply chains. Apple, for example, has a vendor development team dedicated to shortlisting potential suppliers from India. The company aims to integrate 40-70 Indian suppliers into its global supply chain, up from the current 15 suppliers.

Other companies, such as Dixon Technologies and Bhagwati Products, have also forged partnerships with original design manufacturers (ODMs) like Huaqin and Longcheer to improve their manufacturing capabilities and meet the quality standards required for global markets. These collaborations are vital for upgrading India’s component manufacturing ecosystem and aligning it with international standards.

Conclusion
India’s electronics manufacturing sector is at a critical juncture. While the country has made remarkable progress in assembling electronic products, the next phase of growth lies in developing a robust domestic component ecosystem. The government’s planned financial support package, along with strategic collaborations between global players and Indian manufacturers, will play a key role in achieving self-reliance in electronics manufacturing. With the right support and investments, India has the potential to become a global leader in electronics manufacturing, significantly reducing its reliance on imports and strengthening its position in the global supply chain.

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